Share this page:
Stay connected:
Welcome to the Citywire Money Forums, where members share investment ideas and discuss everything to do with their money.

You'll need to log in or set up an account to start new discussions or reply to existing ones. See you inside!



progressive dividend growth vs share buybacks
Dennis .
Posted: 15 May 2018 13:24:02(UTC)

Joined: 26/12/2007(UTC)
Posts: 361

Thanks: 25 times
Was thanked: 210 time(s) in 88 post(s)
I have in my portfolio a number of companies that have a so called progressive dividend growth strategy so that every year the dividend goes up as their profits grow So far so good. But what about the fact that these same companies are often involved in share buybacks which should increase the dividend anyway as the number of shares in circulation falls. I assume that shares bought back are cancelled so am I missing something here? . ie is the dividend increase really down to business growth or engineered via the buy backs or a mixture of both?
Mr Helpful
Posted: 16 May 2018 10:43:04(UTC)

Joined: 04/11/2016(UTC)
Posts: 643

Thanks: 721 times
Was thanked: 852 time(s) in 402 post(s)
This can be a mixed blessing.
If no one else can immediately explain, will try to dig out some info about share buyback potential drawbacks.

One thing did note is that when bought-in shares are put into a company employees reward scheme, they can later be released from the scheme, to rematerialise in the hands of the employees. So no gain there for outside stock-holders. Unless shares more than illusionary cancelled defeats the object.

See also re 'Shareholder Yield' (div + debt reduction + buyback).
But watch carefully :-
in whose hands bought shares end up, if not permanently cancelled
that debt is not being used to fund the buybacks
Posted: 16 May 2018 12:30:44(UTC)

Joined: 01/09/2016(UTC)
Posts: 394

Thanks: 582 times
Was thanked: 577 time(s) in 238 post(s)
Quite often the shares bought under "buyback" are NOT cancelled, they go into the companies treasury and can be re-issued when it suits.
You could argue that since you own shares in the company (or IT) then if this manoeuvre benefits the company it benefits you. However, I am fairly wary about share buy-backs when the shares are not cancelled, as I suspect the motivation for re-issuing may not align with my best interests.
Shares that are bought back and cancelled have my unqualified approval - assuming funded from excess cash with no better investment prospects!
Sorry, this is a bit of a hobby horse....
1 user thanked dyfed for this post.
Dennis . on 17/05/2018(UTC)
Dennis .
Posted: 17 May 2018 17:11:45(UTC)

Joined: 26/12/2007(UTC)
Posts: 361

Thanks: 25 times
Was thanked: 210 time(s) in 88 post(s)
Yes I have never really understood the logic when a company trumpets out " I am going to spend lots of money buying back my own shares" The very fact that you announce it puts the price up and dilutes the effects. - unless of course you are running a share price related bonus scheme for senior staff.
I know that there are taxation issues but if a company has spare cash and doesn't know what to do with it then it should be returned to shareholders.
Stephen B.
Posted: 17 May 2018 18:06:41(UTC)

Joined: 26/09/2012(UTC)
Posts: 297

Thanks: 15 times
Was thanked: 223 time(s) in 128 post(s)
In a way I think you answered your own question. Many companies try to have a dividend that rises steadily above inflation each year, because a lot of investors like that. However, in practice profits may vary from year to year. If you have a good year and pay the extra as a dividend it's quite likely that the following year the dividend would be lower. OTOH, buying back shares will in general raise future dividends forever as the future profits will be spread over fewer shares.
+ Reply to discussion


Other markets